MLC Investment Management’s head of capital markets has observed the industry-wide trend toward medium-term asset allocation, which is even being adopted by “the bastions of actuarial purity”, Russell Investments, but questioned whether it might cause “an insidious slide into market timing” by the multimanager industry.
Speaking at the MLC Implemented Consulting conference last week, Susan Gosling, head of capital markets at MLC Investment Management advocated a contrarian approach to investment that takes into account a range of potential scenarios.
Gosling said most approaches to asset allocation were “too theoretical and too simplistic”, and suggested that medium-term asset allocation could be the next great fad.
“If I can name a competitor, even Russell, the bastions of actuarial purity are doing it,” she said.
After a long history of opposition to tactical asset allocation, Russell Investments has not become a convert but is allowing for a “slower twitch” version of the discipline, which it calls strategic tilting, according to global chief investment officer Peter Gunning during Russell’s recent client conference in Sydney.
Gunning, an Australian now living in Tacoma Beach, advised against auto-rebalancing, and said Russell had developed the ability to take tilts of up to 5 per cent away from long-term strategic asset allocation in its global diversified funds. Russell has also begun monitoring the cycles of active management as part of its multimanager process as a way or reducing behavioural biases, and measuring the suitability of individual markets for active management.
Gosling questioned whether there would be an “insidious slide into market timing”, adding that a scenarios approach forced MLC to be objective and dispassionate.
Contrarian investing ultimately resulted in a better investment outcome, Gosling said, “but you have to be prepared to be cold and alone, often for quite some time”.
“You can either take risk off the table when returns are still strong, or crash and burn with everyone else,” she said. “Doing the right thing can look wrong for quite a while.”
Following Gunning at the Russell conference, an investment strategist at the firm, Andrew Pease, said Russell’s priority in its approach to strategic tilting was to “first do no harm”, and only act when an asset class had reached an “unsustainable extreme” of valuation, guided by trustworthy indicators such as The Conference Board’s CEO Confidence index.